The Universal Investment Strategy (UIS) is one of our core investment strategies. It is an evolved, intelligent version of the classic 60/40 equity/bond portfolio. Much like the classic portfolio, UIS holds both the S&P 500 index and bonds. However, UIS can intelligently adapt to current conditions by shifting weight away from stocks in difficult markets and adding weight in bullish markets.

Instead of using simple bond ETF, UIS uses a sub-strategy, called HEDGE, which can choose between different types of safe-heaven ETFs.

The equity/bond (or in our case equity/HEDGE) pair is interesting because most of the time these two asset classes profit from an inverse correlation. If there is a real stock market correction, usually ETFs included in the HEDGE strategy (Treasuries, Gold, etc) are the 'safe' assets where money flows to, providing crash protection.

'The total return on a portfolio of investments takes into account not only the capital appreciation on the portfolio, but also the income received on the portfolio. The income typically consists of interest, dividends, and securities lending fees. This contrasts with the price return, which takes into account only the capital gain on an investment.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (58.9%) in the period of the last 5 years, the total return, or performance of 63.8% of Universal Investment Strategy is higher, thus better.
- Looking at total return, or increase in value in of 35.7% in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SPY (33.9%).

'The compound annual growth rate (CAGR) is a useful measure of growth over multiple time periods. It can be thought of as the growth rate that gets you from the initial investment value to the ending investment value if you assume that the investment has been compounding over the time period.'

Which means for our asset as example:- Compared with the benchmark SPY (9.7%) in the period of the last 5 years, the annual return (CAGR) of 10.4% of Universal Investment Strategy is greater, thus better.
- Looking at annual performance (CAGR) in of 10.7% in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SPY (10.2%).

'Volatility is a rate at which the price of a security increases or decreases for a given set of returns. Volatility is measured by calculating the standard deviation of the annualized returns over a given period of time. It shows the range to which the price of a security may increase or decrease. Volatility measures the risk of a security. It is used in option pricing formula to gauge the fluctuations in the returns of the underlying assets. Volatility indicates the pricing behavior of the security and helps estimate the fluctuations that may happen in a short period of time.'

Which means for our asset as example:- The historical 30 days volatility over 5 years of Universal Investment Strategy is 9.5%, which is smaller, thus better compared to the benchmark SPY (21.6%) in the same period.
- Looking at 30 days standard deviation in of 10.7% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (25%).

'Risk measures typically quantify the downside risk, whereas the standard deviation (an example of a deviation risk measure) measures both the upside and downside risk. Specifically, downside risk in our definition is the semi-deviation, that is the standard deviation of all negative returns.'

Using this definition on our asset we see for example:- The downside volatility over 5 years of Universal Investment Strategy is 6.9%, which is lower, thus better compared to the benchmark SPY (15.7%) in the same period.
- Looking at downside deviation in of 7.8% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (18.1%).

'The Sharpe ratio (also known as the Sharpe index, the Sharpe measure, and the reward-to-variability ratio) is a way to examine the performance of an investment by adjusting for its risk. The ratio measures the excess return (or risk premium) per unit of deviation in an investment asset or a trading strategy, typically referred to as risk, named after William F. Sharpe.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (0.33) in the period of the last 5 years, the ratio of return and volatility (Sharpe) of 0.83 of Universal Investment Strategy is higher, thus better.
- Looking at Sharpe Ratio in of 0.77 in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SPY (0.31).

'The Sortino ratio, a variation of the Sharpe ratio only factors in the downside, or negative volatility, rather than the total volatility used in calculating the Sharpe ratio. The theory behind the Sortino variation is that upside volatility is a plus for the investment, and it, therefore, should not be included in the risk calculation. Therefore, the Sortino ratio takes upside volatility out of the equation and uses only the downside standard deviation in its calculation instead of the total standard deviation that is used in calculating the Sharpe ratio.'

Which means for our asset as example:- The excess return divided by the downside deviation over 5 years of Universal Investment Strategy is 1.14, which is greater, thus better compared to the benchmark SPY (0.46) in the same period.
- During the last 3 years, the downside risk / excess return profile is 1.06, which is higher, thus better than the value of 0.43 from the benchmark.

'Ulcer Index is a method for measuring investment risk that addresses the real concerns of investors, unlike the widely used standard deviation of return. UI is a measure of the depth and duration of drawdowns in prices from earlier highs. Using Ulcer Index instead of standard deviation can lead to very different conclusions about investment risk and risk-adjusted return, especially when evaluating strategies that seek to avoid major declines in portfolio value (market timing, dynamic asset allocation, hedge funds, etc.). The Ulcer Index was originally developed in 1987. Since then, it has been widely recognized and adopted by the investment community. According to Nelson Freeburg, editor of Formula Research, Ulcer Index is “perhaps the most fully realized statistical portrait of risk there is.'

Using this definition on our asset we see for example:- Looking at the Ulcer Ratio of 4.16 in the last 5 years of Universal Investment Strategy, we see it is relatively smaller, thus better in comparison to the benchmark SPY (8.91 )
- Compared with SPY (11 ) in the period of the last 3 years, the Ulcer Ratio of 5.1 is smaller, thus better.

'Maximum drawdown is defined as the peak-to-trough decline of an investment during a specific period. It is usually quoted as a percentage of the peak value. The maximum drawdown can be calculated based on absolute returns, in order to identify strategies that suffer less during market downturns, such as low-volatility strategies. However, the maximum drawdown can also be calculated based on returns relative to a benchmark index, for identifying strategies that show steady outperformance over time.'

Which means for our asset as example:- Looking at the maximum DrawDown of -15 days in the last 5 years of Universal Investment Strategy, we see it is relatively greater, thus better in comparison to the benchmark SPY (-33.7 days)
- During the last 3 years, the maximum DrawDown is -15 days, which is higher, thus better than the value of -33.7 days from the benchmark.

'The Maximum Drawdown Duration is an extension of the Maximum Drawdown. However, this metric does not explain the drawdown in dollars or percentages, rather in days, weeks, or months. It is the length of time the account was in the Max Drawdown. A Max Drawdown measures a retrenchment from when an equity curve reaches a new high. It’s the maximum an account lost during that retrenchment. This method is applied because a valley can’t be measured until a new high occurs. Once the new high is reached, the percentage change from the old high to the bottom of the largest trough is recorded.'

Which means for our asset as example:- Looking at the maximum time in days below previous high water mark of 271 days in the last 5 years of Universal Investment Strategy, we see it is relatively higher, thus worse in comparison to the benchmark SPY (271 days)
- Compared with SPY (271 days) in the period of the last 3 years, the maximum days below previous high of 271 days is greater, thus worse.

'The Drawdown Duration is the length of any peak to peak period, or the time between new equity highs. The Avg Drawdown Duration is the average amount of time an investment has seen between peaks (equity highs), or in other terms the average of time under water of all drawdowns. So in contrast to the Maximum duration it does not measure only one drawdown event but calculates the average of all.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (60 days) in the period of the last 5 years, the average days below previous high of 56 days of Universal Investment Strategy is lower, thus better.
- Compared with SPY (72 days) in the period of the last 3 years, the average days below previous high of 68 days is smaller, thus better.

Historical returns have been extended using synthetic data.
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- Note that yearly returns do not equal the sum of monthly returns due to compounding.
- Performance results of Universal Investment Strategy are hypothetical, do not account for slippage, fees or taxes, and are based on backtesting, which has many inherent limitations, some of which are described in our Terms of Use.